It’s guest post week again. Today we’ll hear from Ian Dawkins of Blue Anchor SEO:
Starting your own business with little more than a great idea and a lot of determination is something that has always been a big dream for some entrepreneurs. People are often told that it takes years before you will even begin to see profit if you start a business of your own, which can scare many people away from actualizing a great idea. There is a large market for small business or start-up investment that can be seen on sites such as CMC Markets as many investors can see the advantage of coming into a small business before it becomes big.
One of the biggest problems that small businesses and startups face is capital to be able to expand or grow a business to the stage where they can begin making real profits. Some business models require that there be sufficient capital for any trade or commerce to begin. Without that initial investment, many businesses fail before they can be given the chance to succeed.
A key part of the business plan and the CEO’s job is to ensure that there is enough capital to achieve the business’ goals. The CEO must be able to keep track of the current capital and understand whether that is going to be enough for the current business plan.
The valuation of a business does not change over time if nothing much has changed. This means that what was first needed as far as capital is concerned a year ago does not change over time unless certain milestones have been reached. Some businesses mistakenly believe that just because there has been some progress in their company, but not a major milestone, that their company is now worth more. A milestone is considered a time in a company when the major company goals have been achieved and now they are looking for further investment to complete another stage of a larger business plan.
As an example, a software company’s milestones may look like the following:
- The progression from the seed round of investments – The major difference here is the removal of the major risk factors for investors. This can come about through the hiring of a key member of the team, overcoming a major technical obstacle, or development of a prototype. Customer reactions to a product that has been designed can also be a risk reducing factor.
- Beta testing and customer approval – An important step for a software company could be when it takes its product into beta testing and receives a positive response from its testers or customers. A key factor here is the validation from the customer, not just moving into the beta testing phase.
- Shipping of products – Once the product has started shipping and customers have paid, it can be an excellent time to expand and find more investors. Positive feedback from the client is important here.
- Market fit issues – Once the product is on the market, it may become clear that other features are required that may require hiring additional personnel or slightly redesigning the product. This can be cause to find more investors.
- The business has scaled well but the next step is required – After the initial response has been good and the business model is working, it is time to scale up and accelerate your company’s growth through further investment.
One of the biggest problems facing small businesses and start-ups is not being able to reach their milestones before running out of capital. An effective and realistic business plan is important to avoid this situation from happening, including adequate market research.
It is the CEO’s job to ensure that early spending is kept to a minimum to ensure that the initial investment that helped to start the company is not wasted by trying to do too much too fast. The hiring of additional sales staff before the product is finished is an example of a waste of the investors’ money in the initial stages of the company. Investors are on the lookout for these situations and will avoid investing.
The CEO also needs to know when milestones are hit and it is time to look for further investment into the growth of a small business or startup. Knowing when to find investors will not only make finding investors easier but it will also increase the valuation amount your company has.